The evolution of shopping

Shanghai is the world's most active market in terms of retail centers, with 1.12 million sq m of newly completed space as of the end of 2016. GAO ERQIANG / CHINA DAILY

While industry experts say that e-commerce can never replace the retail experience provided by shopping centers, mall operators will nevertheless need to innovate to prevent being left behind

Having a physical store in this digital age may seem like the old school thing to do, but for foreign retailers looking to break into the Chinese market, such a space is a necessity.

The mille crepes of the famous New York patisserie Lady M made their debut in China at the IFC Mall in Shanghai on Sept 3. Likewise, French high-end department store Galeries Lafayette is poised to open its second location in China in 2018. But this time around the brand will be situated in a local shopping mall in Shanghai instead of occupying an entire building.

Galeries Lafayette (China), a joint venture between Societe Anonyme des Galeries Lafayette and Hong Kong's I.T. Ltd, will take up 23,100 square meters in the new Shanghai Lujiazui mall, according to a letter of intent signed by the two parties in August.

"Opening the store inside a shopping mall will lower business costs and risks for Galeries Lafayette," said Qi Xiaozhai, head of the Shanghai Society of Commercial Economy. "But to attain success in a highly competitive shopping mall scene means it also has to find its own positioning amid the fierce competition of Shanghai's numerous shopping centers, department stores, as well as the rampant e-commerce sector, which is not easy either."

Galeries Lafayette first entered the Chinese market in 1997 but its store in Beijing shuttered about one year later. It returned to the country in 2013 with a store in Beijing's major commercial area of Xidan.

History of the retail market

The first generation of China's commercial real estate came in the form of Chinese-style department stores over two decades ago. These facilities featured a standard configuration: make-up and accessories were sold on the first floor, prom dresses on the second, women's clothing on the third, menswear on the fourth, a supermarket in the basement level and a small food and beverage area on the top floor.

Such department stores enjoyed more than a decade of rampant growth starting from the 1990s but they gradually lost their appeal as shopping malls emerged.

"Shopping malls have an advantage over department stores because they have a flexible mix of offerings such as clothes, food, education and entertainment," said Siu Wing Chu, managing director of central China for Savills China.

According to the latest report from Shanghai Business Development Research Center, the commercial complex has become an important destination for consumption, leisure activities, service, cultural and arts exhibitions. Last year, the 189 commercial complexes scattered across the city posted a combined sales revenue of 136 billion yuan ($20.86 billion), up 16.9 percent year-on-year, and the figure is expected to hit 160 billion yuan this year.

Meanwhile, the revenues at China's department stores declined from 1.01 trillion yuan in 2014 to 994 billion yuan last year. Euromonitor International forecast that the figure will further slip to 904 billion yuan by 2021.

Galeries Lafayette's new store comes as China's retail sector experiences a spurt in supply of shopping space.

According to the latest report from the Shanghai Council of Shopping Centers, 11 new commercial projects in the city became operational in the first six months of this year, adding a total of 687,000 sq m to the city's existing 13.75 million sq m.

A study conducted by international commercial real estate service firm CBRE found that there are 19.7 million sq m of retail construction in the country, nearly 60 percent of the global total. The study also found that Shanghai is the world's most active market in terms of retail centers, with 1.12 million sq m of newly completed retail space as of the end of last year.